If you make an initial deposit of $1000 in an account that yields 5% interest
1 answer:
SI
$1 000 × 4 % × 10 = $400
CI
($1 000 × 1.04 ^10) - $1 000 = $1 480.24 - $1 000 = $480.24
Interest on interest only applies to Compound Interest.
Excluding year 1, which yields $40 [the same as SI] the interest on interest yields $480.24 - $40 = $440.24
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